Insights to Help Decrease Customer Churn (and Increase Growth)

There is no stronger driver of a SaaS company’s success than the success of its clients in adopting and getting value from its software. Maximizing the retention of customers—and creating upsell opportunities—is critical for the stability of a business and provides the strongest possible path to growth.

In our most recent survey of RAC portfolio companies, we asked about practices that are designed to foster and improve customer success (CS). These include areas like customer onboarding, the use of KPIs and customer scorecards, as well as the division of responsibilities between sales and customer success teams and the incentive structures used. We also asked about the most common causes of preventable churn. What we learned should be helpful to any SaaS business looking to strengthen its ability to onboard, service and grow its customer base—and therefore its own success.

Companies in the survey

In our view, the RAC portfolio of companies are all successful B2B SaaS businesses with more than $3 million in annual recurring revenue (ARR) across a variety of industries. We surveyed 15 of our companies around this topic, and separated them on the relative basis of high or low growth, as well as high or low customer churn.

When reviewing the survey results, a few high-level themes stood out:

1. Data is a valuable tool in monitoring customer relationships and your broader business, but over-analysis during the sales process may in some cases be counter-productive.
2. A customer success professional is not a sales person—it helps to be mindful of the division of responsibilities between CS and sales teams, as well as how they are incentivized.
3. A proactive and rigorous approach to customer success is paramount in order to limit customer churn—CS is most successful when it is a consistent, company-wide effort.

By the numbers: data highlights from the survey

• 80% of low-churn / high-growth companies use customer advisory boards and regular business reviews to manage customer relationships
• 0% of high-net-churn companies utilize customer scorecards
• 60% of low-churn companies actively engage their customer success team at the evaluation stage, before a contract has been signed
• 75% of low-churn companies use a more “general” ROI analysis rather than customer-specific projections
• 95% of companies reward CS team for renewals
• 80% of high-growth companies use a combination of sales and CS to manage upsells and renewals
• 67% of companies pointed to inattentiveness and a lack of access to customer data as the leading cause of preventable customer churn

Let’s take a look at six major topics from our survey.

1. Engaging Customer Success early makes a difference

Of the companies with the lowest churn, over 60% actively engage customer success with potential clients at the evaluation phase before a contract has been signed.

Interestingly enough, companies with the strongest growth dynamics were less likely to include the CS team at the evaluation stage, as 75% of them involve CS only once a contract is signed and onboarding has commenced.

It’s important to note that the high-growth companies did have higher levels of churn, on average. This may indicate that high-growth companies prioritize sales execution over institutionalizing processes for customer benchmarking and onboarding. Involving your CS team early can help identify potential red flags and enable sales and management teams to better understand the company’s ideal customer profile (ICP) to ensure they are targeting the right prospects.

Further reinforcing this point, the remaining 25% of high-growth companies that did involve CS at evaluation showed better customer retention than the rest of the cohort.

2. ROI projections – is the juice worth the squeeze?

Does building specific ROI analyses for prospective customers during the sales process lead to stronger customer retention? Our survey showed mixed results.

In one case, this was a negative indicator: companies that had low customer churn were much less likely to use custom ROI projections versus companies that exhibited higher churn. In fact, the companies that had the highest churn reported using customer-specific ROI projections at the evaluation stage 60% of the time. On the other hand, 75% of the companies that chose to use a more “general” ROI analysis rather than customer-specific projections exhibited significantly lower churn.

These results indicate that ROI models can be an effective tool, but companies should be mindful of how they are formulated. Perhaps the low churn companies set reasonable expectations for the value of their software without attempting to quantify that value with an inappropriate level of precision. Over-promising early in the sales process may create challenges for long-term customer retention. If anyone has other theories based on their experience, we’d love to hear them!

3. Customer scorecards and advisory boards support lower churn and higher growth

The use of customer scorecards showed a positive effect on customer retention. Over 70% of the low-churn cohort used customer scorecards to monitor relationships, while the opposite was true of high-net-churn companies, none of which used scorecards.

Two-thirds of low-churn companies used various KPIs to better understand customer health. Tracking items like log-ins, session time, and tickets closed can yield valuable information relating to customer health and, therefore, help to drive more focused retention efforts.

One way to keep your finger on the pulse of customer relationships is through customer advisory boards and quarterly business reviews. Over 80% of companies with high-growth and low churn did both, while more than 40% of high-gross-churn businesses didn’t conduct quarterly business reviews or have customer advisory boards. Advisory boards and quarterly business reviews are a great way to extract helpful data that can help all facets of a business (product, sales, CS, operations).

4. What is the best way to spur implementation?

It is axiomatic that getting companies up and running is critical to usage and, ultimately, retention. Of the companies with the best retention dynamics, the top 20% provided a more templatized adoption experience to take friction out of the onboarding phase.

A few of the highest performing companies shared some unique tactics they deploy in order to get their clients comfortable and active on their platforms.

One company took a page out of the agile practice handbook by delivering in sprints, with the highest-value features coming in sprint one. This assures that clients have access to the features that are most critical to their business needs and makes the user experience less noisy.

Another reported that they often try to finish some implementation steps before a deal is signed with a customer. That way, the customer gains comfort with the platform, begins to see the value early in the process, and even psychologically feels as though they’ve already made the purchase. We thought this was an interesting tactic that others might consider trying.

5. The impact of compensation metrics

Compensation structures for the sales and CS teams seem to have a direct impact on the ultimate success of low-churn companies. 95% of companies reported that they reward CS for renewals, while the only company that didn’t reward for renewals exhibited the least favorable retention dynamics among those surveyed.

A common theme among high-growth and low-churn companies was the presence of multiple metrics to determine compensation for sales and CS team members. 80% of high-growth companies and over half of the companies with the best retention metrics reported that they reward CS for both upsells and renewals.

Of the companies with the best retention dynamics, 60% had the sales team manage upsells and renewals, while 80% of high-growth companies used a combination of sales and CS to manage upsells and renewals. This highlights the importance of collaboration – it may be beneficial to have sales personnel manage the upsell process while still compensating CS team members for upsell successes. This can encourage proper collaboration while still separating responsibilities in a way that builds trust with clients, limiting the perception of ulterior motives within the CS team.

It is important to keep in mind that the behavior traits of a CS person and a sales person are different; it may be wise to only compensate your CS people like sales people once customers are deeply rooted in your software.

So how can this insight be put into practice? One company suggested that early on in the customer relationship, you may consider compensating your CS team based on customer activities—such as product walkthroughs and onboarding milestones completed. Then, shift compensation to incentivize adoption increases and upsell leads. Finally, shift to dollar retention and upsells.

6. The biggest contributors to preventable churn (self-diagnosis)

Companies were asked an open-ended question: “What do you think is your single biggest reason for preventable churn?” Three themes surfaced from these responses.

First, onboarding is a pain point; companies suggested they do not have a well-established process in place to help clients get started and using the product in the right way.

Next, a lack of proactiveness was cited as a hurdle to customer retention. Companies feel that CS team members need to do a better job of bringing ideas and suggestions to customers to help them have a more successful product experience.

Finally, two-thirds of respondents pointed to inattentiveness and a lack of access to customer data—essentially a lack of attention on the health of customer relationships—as having the biggest impact on customer churn. Ultimately, this may be the best insight of all: the lowest-churn companies are vigilant, proactive, and never let their guard down when it comes to taking care of customers.